Why not invest in a yield that is slightly higher than the average return of the stock market over the past few decades? That's the kind of opportunity that Kinder Morgan Energy Partners (NYSE:KMP) and its parent company Kinder Morgan (NYSE:KMI) offer by yielding 7.5% and 5.3%, respectively.
To reward loyal, long-term shareholders, the Kinder Morgan family recently reaffirmed its 2014 financial guidance, saying it could either meet or exceed expectations. Kinder Morgan shareholders can expect to see at least an 8% dividend increase, while unitholders of Kinder Morgan Energy Partners will be rewarded with at least a 5% distribution increase. This reaffirmation should be a nice vote of confidence early in the year.
How does Kinder Morgan do it?
This is a map of Kinder Morgan Energy Partners' existing assets, which are in most of America's booming shale plays. Through clever investments across the midstream spectrum, Kinder Morgan Energy Partners was able to grow its earnings by 27% last year. Management expects to continue the climb upward, with guidance calling for 15% earnings growth this year.
To grow its bottom line by 15%, Kinder Morgan Energy Partners will complete two projects in Canada this year. With the Alberta Crude Terminal and Edmonton Rail Terminal expected to be completed by the third quarter and fourth quarter of 2014, respectively, Kinder Morgan Canada will provide a strong short-term catalyst for investors.
Beyond 2014, Kinder Morgan has the Tennessee Gas Pipeline conversion project, which will transport natural gas liquids from the Utica and Marcellus shale region to the Gulf of Mexico. What makes this conversion even better is that Kinder Morgan Energy Partners is forecasting initial capacity of 150,000 barrels per day with the possibility to reach 400,000 bpd later. By investing in huge projects that offer growth possibilities after completion, Kinder Morgan Energy Partners is expanding its growth prospects.
Innovating the midstream space
Kinder Morgan Energy Partners can now make money both on land and on the high seas thanks to its recent purchase of American Petroleum Tankers and State Class Tankers. With the deal, Kinder Morgan Energy Partners obtained five Jones Act tankers with the ability to carry 330,000 bbl (barrels of liquid) each. To further capitalize on the controversial Jones Act, Kinder Morgan Energy Partners will build four more Jones Act tankers with similar capacity.
This is why the Kinder Morgan family is always worth considering, because of its ability to diversify into areas where other midstream operators are absent. With a backlog of $14.8 billion worth of major growth projects, Kinder Morgan Energy Partners has a long runway of continuous growth ahead.
Another way Kinder Morgan is shaking up the midstream space is by moving into the refinery business, sort of. Through a long-term commitment from BP, Kinder Morgan Energy Partners plans to build a 100,000 bbl condensate processing facility for $370 million. The purpose of this facility is to process crude oil just enough so it can be exported without violating the 1975 crude oil export ban. This is a clever move by both parties and provides Kinder Morgan Energy Partners with a new revenue stream, revenue that can easily grow through the expansion of the facility as market conditions dictate.
With a large backlog of major capital projects that will keep churning out additional earnings growth for years, Kinder Morgan Energy Partners and Kinder Morgan will manage to keep boosting their respective payouts each year. From land to sea, Kinder Morgan Energy Partners is cranking out new sources of cash flow from areas other midstream operators avoid, which allows Kinder Morgan to capitalize on trends other players are missing.
Investors who are looking for stability, high yields, earnings expansion, income growth, and a way to play the US energy revolution should look no further than Kinder Morgan and Kinder Morgan Energy Partners. The Kinder Morgan family has a track record of proven success; and with such a large runway ahead, the growth story is far from over. This is why investors should buy into the Kinder Morgan family.
How does Kinder Morgan's distribution stack up against its peers?
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a look at three energy companies using a small IRS "loophole" to help line investor pockets. Learn this strategy, and the energy companies taking advantage, in our special report "The IRS Is Daring You To Make This Energy Investment." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free.
Callum Turcan owns May 17 call options for Kinder Morgan. The Motley Fool recommends Kinder Morgan. The Motley Fool owns shares of Kinder Morgan. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.